3 Stupid Tax Mistakes
It’s that time of year in America when taxes are on our minds. When we get to pay the government for the privilege of providing fellow citizens with jobs, supporting the economy, doing something that matters to our community, etc. However you might feel about the tax system in general, one thing you shouldn’t do is make stupid tax mistakes, especially with your business. We can tell you we’ve seen them all, multiple times, and they will usually bring any sale to a screeching halt.
Not paying taxes
Small business owners have cash crunches at times, and it can be tempting to take money from any available source. One of the most obvious places is the withholding for your employees. Many small businesses don’t use a payroll service and are responsible for paying the withholding to the IRS on a timely basis. Instead of doing that, they “borrow” the money that isn’t theirs. This never, ever works out well.
Worse, if you do have a payroll company that files timely reports, the IRS will be immediately notice the discrepancy between the filings and what has been deposited and you’ll get some lovely new fines and penalties to go along with what was already due.
Other small business owners don’t pay their estimated taxes, or fail to even regularly file taxes. If they’re thinking the government won’t notice… they will.
Inventory is only deductible when you sell it, and sometimes people want to make their balance sheet look better, so they fidget with the value of their inventory to “create” tax savings. Then they change inventory values back the following year. Sometimes they lose track of what they’ve done, and now the books don’t just look bad in the case of an audit, any potential buyer will be confused as well. Their suspicions will be rightfully aroused as to what else might be not quite right in the business. Check the new tax law to see if you’re eligible to treat inventory differently. Some businesses now are.
Have Low Revenues or Consistently Poor Profitability
We often say we’ve “seen it all” here at APEX, but the IRS has truly seen it all. The difference is that they have the legal power to make you pay for your mistakes, whereas we can only cringe around the office.
Suspiciously low revenues or consistent significant pass-through losses, especially in S-corporations, are blinking red lights that say, “Come audit me!” There are better ways to make tax savings than using a corporation beyond the limits of the fairly generous tax allowances that we get in the US.
Every business is different and has its own set of challenges. But they all answer to the IRS. And the lesson we’ve taken from dealing with so many businesses and transactions year after year is that taxes are what Mark Twain said they were years ago: as inevitable as death.
Have you made some of these mistakes but are hoping to sell your business? We can connect you with the right people to get these issues handled so we can help your business go to market. Give us a call today.